New Zealand's financially embattled district health boards will receive a fiscal shot in the arm from the Government as their deficits continue to widen.

To reduce some of the immediate cost pressures the district health boards (DHBs) are facing, the Government will now be picking up more of the costs when it comes to buying new medical buildings and equipment.

This means, says Health Minister David Clark, the Government will be directly funding DHB's capital charge for new investments in buildings and equipment.

For example, a DHB could receive up to $18 million a year to cover the capital charge related to a new $300 million hospital building.


In the past, DHBs have had to pay the $18 million out of their own budgets.

The Government will fund DHB's capital charge for new investments in buildings and equipment. Photo / Jason Oxenham.
The Government will fund DHB's capital charge for new investments in buildings and equipment. Photo / Jason Oxenham.

Clark said this was not an effective system and, from now on, that cost will be covered by the Government.

He said this would provide more stability from DHBs.

This comes as DHB's deficits continue to widen.

The latest data shows the combined deficit for all 20 DHBs across the country was $264 million.

The Treasury and the Ministry of Health expect that number to climb to by the end of the 2018/19 financial year.

Just how much capital charge relief each DHB receives depends on the size of their individual deficit.

But National said the changes announced today were merely a band-aid and won't address the underlying causes of DHB deficits.


"Despite what the Government claims, removing the capital charge will not affect the overall level of funding available for DHBs because the Government will simply have less additional money available for DHBs each year.

"This is a case of the Government failing to acknowledge that someone has to pay the costs of borrowing to fund capital investment, and in this case it will be New Zealanders who have to pick up the slack."

Clark is not the only one to have queried why the capital charge system was ever in place.

Late last month, the Government's spending watchdog – the Auditor-General – questioned the existence of a capital charge system in the health sector.

In the last financial year, DHBs paid the Government more than $320 million in capital charges – close to $70m more than the total overall DHB deficit in the year to July.

"As we have noted previously, it is not clear what the capital charge is actually achieving in the health sector," Auditor-General John Ryan said.

Clark said the Treasury has been asked to review the effectiveness of the capital system settings for DHBs.

That work, he said, was ongoing.

Clark said there were a number of other initiatives under way which aims to improve the way DHBs manage their infrastructure assets.

This was a key concern of the Auditor-General, who said a "significant proportion" of DHB buildings need to be replaced.

Clark said DHBs will be partnering with the Ministry of Health to develop a National Asset Management Plan to map out the current state of health facilities.

"This will mean we can make more informed decisions, better prioritise upgrade work and plan for new facilities."

This is in addition to the $1.7 billion made available in the budget to spend on capital investment in hospitals and other health facilities over the next two years.